Electricity supply in Ethiopia is extremely antiquated. Most of the remote rural areas of Ethiopia are not yet electrified. Electrifying these remote areas by extending grid system is difficult and costly. Melkey Hera village is one of a rural community situated in western Ethiopia. In this village, extension of the grid is not yet practical. As the current international trend in rural electrification is to utilize renewable energy resources; solar, wind, biomass, and micro hydro power systems can be seen as alternatives. Therefore, the target of this paper is to investigate the viability of a micro hydro, Photo Voltaic (PV) and Diesel Generator-battery hybrid power system options to come up with the best techno-economic and optimum configuration for supplying electricity to this village. The study was performed by an assessment of the predicted village energy demand, the available renewable energy resources, and then using the software called HOMER. The best hybrid system type was described and the optimization of the system configuration was also done. Furthermore, through the simulation of different configuration of the supply system, the optimal mini-grid hybrid system design was established to combine hydro, solar PV, battery energy storage and diesel generator. This system demonstrated to be more reliable in operation, and the most cost-effective for the required level of service. The role of energy storage in system operation also demonstrated to offer additional operational advantages in-terms of reliability and cost savings. Overall, the design results show that the majority of energy obtained from hydropower, which accounts 79%, the PV module covers 20%, and diesel generator is only 1% of the total load consumption. The obtained hybrid system is cost competitive with $\$$0.133/kWh, which is somewhat good to satisfy the community needs. However, this is more than current energy price in Ethiopia which $\$$0.06/kWh. If due-merit given to the electricity deficiency of the country, it would play major role in improvement of life quality of community living in rural areas. From environmental standpoint, the renewable fraction of the project is 99%, which shows the system is environmentally friendly. Finally, this study identified that off grid hybrid micro hydro-PV-DG-battery bank energy system is cost effective and environmentally friendly in delivering power for rural areas far from the grid. Moreover, the study provides valuable information to the government and Non-government organization (NGO) about the renewable energy potential of the country for a rural electrification project in Ethiopia.